Maxtor Shoots for Enterprise Growth

Maxtor Corp. (NYSE: MXO) became the third hard drive maker to raise its guidance in the last two weeks, when its new executive team today outlined plans for bringing the troubled company to profitability.

Well, profitability certainly remains a long way off, but executives told financial analysts on a conference call that they have a 100-day plan to start the turnaround.

Maxtor forecast revenue of $980 million to $1.01 billion for the current quarter, and a pro forma loss of $42 million to $44 million. Maxtors previous guidance for the quarter was revenue from $920 million to $950 million and a loss between $45 million and $55 million, or $0.18 to $0.22 per share.

Last quarter, Maxtor reported a pro forma net loss of $58.3 million on revenues of $927.2 million. Executives said sales through major OEMs have been better than expected so far this quarter, and they expect to turn a profit on enterprise drives next year.

Seagate Technology Inc. (NYSE: STX) and Western Digital Corp. (NYSE: WDC) also upgraded guidance for the quarter. But neither of those companies had to introduce a new executive team while providing guidance -- as Maxtor did today.Maxtor CEO C.S. Park, president Mike Wingert, and CFO Duston Williams all took new posts within the company in the last month. Paul Tufano resigned as CEO, president, and interim CFO Nov. 15 (see Maxtor CEO Bolts). Park immediately succeeded him as CEO, and Wingert was hired two days later (see Maxtor Names President).

Williams came aboard Nov. 15 as the company’s third CFO this year -- fourth if you count Tufano (see Maxtor Names Another CFO). The previous CFO, Michael Bless, quit in October after less than two months on the job (see Maxtor CFO Quits).

The team said their three main focus areas are reducing manufacturing costs and expenses and improving Maxtor's product roadmap.

"The company’s costs and expenses are too high and uncompetitive,” Park said. He did not say whether there will be further staff reductions. Maxtor announced the layoff of around 450 employees in July.

On the product front, Maxtor will stop manufacturing a single-headed desktop platform and stick to its multi-headed platform. Wingert said he expects Maxtor to be profitable on its Atlas server drives in the first half of next year. The company hopes to ship Atlas drives with SAS interfaces in the first quarter of 2005.“I see nothing at Maxtor that can’t be fixed,” Williams said.

Needham & Co. upgraded Maxtor’s stock price even before today’s conference call.

“We are becoming more optimistic about the potential for turnaround,” Needham analyst Richard Kugele wrote in a research note. “With a well-respected new management team in place, we expect meaningful changes at the company.” Kugele also pointed to a healthier drive industry in predicting Maxtor’s turnaround.

Regarding other disk drive makers: Deutsche Securities and CIBC World Markets

upgraded Seagate’s stock today, a day after it raised its guidance for the current quarter to revenue of $1.76 billion and EPS of more than $0.22. The revenue figure is the same that Seagate reported in the same quarter a year ago. Last quarter, Seagate reported revenue of $1.56 billion and $0.11 EPS. In October, Seagate’s guidance for this quarter was for revenue of $1.58 billion to $1.65 billion, and EPS of $0.11 to $0.14.

“We believe that we are on our way to re-establishing a year-over-year growth trend,” Seagate CEO Bill Watkins said during the Seagate conference call. “We are feeling pretty good right now.”Western Digital also raised its guidance in an SEC filing two weeks ago. Western Digital now expects revenue from $885 million to $915 million and EPS of $0.17 to $0.19. Its previous guidance in October was for $830 million to $865 million. Western Digital didn’t give an EPS forecast in October but the First Call analysts’ estimate was $0.15.

— Dave Raffo, Senior Editor, Byte and Switch